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Net Present Value. Lepton Industries Has A Project With The Following Projected Cash

The document presents a project with initial costs of $510,000 and projected cash flows over four years totaling $695,000. It asks to calculate the net present value (NPV) using discount rates of 8%, 14%, and 20% to determine if the project should be accepted or rejected. At 8% discount rate, the NPV is positive $66,849 and the project is accepted. At 14% discount rate, the NPV is negative $2,106 and rejected. At 20% discount rate, the NPV is negative $58,669 so the project is rejected.

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Sharulatha S
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136 views1 page

Net Present Value. Lepton Industries Has A Project With The Following Projected Cash

The document presents a project with initial costs of $510,000 and projected cash flows over four years totaling $695,000. It asks to calculate the net present value (NPV) using discount rates of 8%, 14%, and 20% to determine if the project should be accepted or rejected. At 8% discount rate, the NPV is positive $66,849 and the project is accepted. At 14% discount rate, the NPV is negative $2,106 and rejected. At 20% discount rate, the NPV is negative $58,669 so the project is rejected.

Uploaded by

Sharulatha S
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd

Net present value.

Lepton Industries has a project with the following projected cash


flows:
Initial Cost: $510,000
Cash flow year one: $135,000
Cash flow year two: $240,000
Cash flow year three: $185,000
Cash flow year four: $135,000
a. Using an 8% discount rate for this project and the NPV model, determine whether
this
project should be accepted or rejected.
b. Should it be accepted or rejected using a 14% discount rate?
c. Should it be accepted or rejected using a 20% discount rate?

ANSWER
(a)
NPV = - $510,000 + $135,000/1.08 + $240,000/1.082 + $185,000/1.083 + $135,000/1.084
NPV = - $510,000 + $125,000.00 + $205,761.32 + $146,858.96 + $99,229.03
NPV = $66,849.31, and accept the project.
(b)
NPV = - $510,000 + $135,000/1.14 + $240,000/1.142 + $185,000/1.143 + $135,000/1.144
NPV = - $510,000 + $118,421.05 + $184,672.21 + $124,869.73 + $79,930.84
NPV = - $2,106.17, and reject the project.
(c)
NPV = - $510,000 + $135,000/1.20 + $240,000/1.202 + $185,000/1.203 + $135,000/1.204
NPV = - $510,000 + $112,500.00 + $166,666.67 + $107,060.19 + $65,104.17
NPV = - $58,668.97, and reject the project

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